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Privatization of social
security
New business opportunities
January 3, 2005
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An issue that
will get a lot of attention in 2005 and beyond is the
privatization of social security. It was proposed in
the 2000 election cycle but due to strong opposition, it was
canned to be implemented if President Bush won a second
term. Now that he has won re-election and the US
economy is much worse than it was in 2000, privatization of
social security might seem like the easiest thing to do to
give the economy a short-term boost. This article is
not a place to discuss pros and cons of privatization, but
to provide a perspective on new business opportunities that
will be created. (Related article: Impact
of Social Security privatization on businesses)
What impact will privatization of social security
have?
- Increased investment in private enterprise - whether through stocks or
bonds - should create more economic opportunities and boost domestic growth.
- More investment capital in the private sector should result in
productivity gains as companies make new investments in
technology and people. This is a debatable,
though. In recent years, despite a lot of cash on
balance sheets, US corporations have not invested, at
least not in the United States.
- Younger individuals are likely to invest most of their contributions in stocks, and the increased demand would propel stock prices higher in the short term.
Again, this will only be in near term. In the long
term, equity prices will still be determined by
fundamentals.
- Capital invested in bonds, money market funds, and other types of
safe investments will create greater demand for bonds -
a traditionally conservative investment. This is
likely to keep interest rates lower which is generally
good for the economy.
New Business opportunities from privatization of
social security
- Financial services: This sector will benefit the
most and not only because of more investments but also
in form of a broader customer base with enormous
cross-selling opportunities.
- Personal financial advice: A completely new set
of investors will enter the world of stocks and bonds
for the very first time. They will need a lot of
assistance in managing their investments.
- Easy access to capital: If you are an
entrepreneur or business leaders, lower interest rates
and abundance of capital will enable you to grow faster.
Useful links:
Bringing
economic prosperity to America
Social
Security Privatization
Lessons
from failure to privatize Social Security
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